Does This Mobile Game Acquisition Make Sense?
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On July 8, toy maker Hasbro (NASDAQ: HAS) announced the acquisition of a 70% stake in privately held mobile game company Backflip Studios. You may ask: Why would a toy company that owns some of the most rock solid iconic brands from G.I. Joe to Transformers want to buy a company operating in an unproven industry such as mobile gaming? That’s a good question. Let’s examine….
You’re right in the fact that mobile gaming lies in unproven frontier territory. Moreover, mobile gaming represents a luxury that people can live without paying for. Mobile gaming company Zynga (NASDAQ: ZNGA) provides evidence of this fact.
Zynga experienced a decline in revenue of 18% along with a 30% decline in monthly unique players in its most recent quarter. The company decided to bring in a new CEO, Don Mattrick from Microsoft to try and straighten things out.
A number of people believe that mobile gaming represents the future of video gaming altogether. Video game maker Electronic Arts (NASDAQ: EA) showed losses from 2009 to 2011 and showed profit margins of less than 3% for fiscal years 2012 and 2013. However, the company showed “significant” increases in internet and mobile derived products to the tune of 24%.
Skills and marketing acquisition
Recently, Hasbro entered into an agreement with Electronic Arts to develop mobile games for popular traditional board games such as Monopoly, Scrabble, and Battleship. However, this leaves Hasbro out in the cold when it comes to the intricacies of developing games pertaining to its other brands.
Hasbro’s subsequent acquisition of Backflip Studios represents an effort on its part to gain skills in an area that could prove useful in moving forward with its brand blueprint. This gives the company greater control in the areas of utilizing mobile gaming to advance its branding initiatives and improving the chances of adding value to its brands. In addition, Hasbro has inherited a new set of popular mobile gaming brands.
The financials weren’t disclosed but Hasbro had this to say about Backflip, “Backflip Studios has become one of the fastest growing and most profitable mobile game studios with more than 300 million downloads of its popular games.” This gives indication that Backflip’s financials lay on more solid footing.
The future of toys
Hasbro probably appreciates the increased competition on a child’s attention in this age of the smartphone and mobile computers such as the iPad. If it could develop mobile games based on iconic brands such as Transformers, My Little Pony, and G.I. Joe then it could gain more attention for the toys its sells.
Some pundits argue that the toy industry experienced slowing sales due to the popularity of tablets. However, as long as the popularity of movies based on the toys such as Transformers holds up, then toys will remain relevant.
Look for Hasbro to develop more mobile games based on its major core brands: Transformers, G.I. Joe, My Little Pony, and Magic: The Gathering. Moreover, expect Hasbro to leverage the popularity of Backflip’s games portfolio such as DragonVale, NinJump, and Paper Toss. Maybe you could see toys based on those titles. From a skills and marketing standpoint this acquisition actually makes sense.
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